In today's Budget, the Government confirmed its previous announcement in the Autumn Statement, that it intends to introduce a new 'employee shareholder' employment status, and extend the tax advantages on shares provided to employee shareholders on or after 1 September 2013.
Mark Groom, tax partner at Deloitte, said: "Employees wishing to take part would agree to give up certain employment rights in exchange for tax favoured shares. Employers must provide a minimum of £2,000 worth of shares for no consideration (other than giving up the relevant rights). A maximum of £50,000 can be provided."
The original proposal was only to allow employee shareholders to sell their qualifying shares without capital gains tax. Today, the Chancellor confirmed that up to £2,000 worth of shares can be provided to employee shareholders free of income tax and NIC. Only amounts in excess of £2,000 would be subject to income tax and NIC.
Groom continued: "This is clearly welcome news; however, the scheme is not without complexity. If an unquoted company wants to keep to the minimum value of shares, given that HMRC will currently only agree share values post transaction, how will it determine the correct number of shares to provide? If it underestimates the value, the shares won't qualify for the new relief. If it over-estimates the value, it will have given too much away."
There are also concerns that the new scheme could end up being used to deliver significant tax free growth to certain key employees, rather than achieving the Government's main objective of increasing flexibility and reducing the regulatory burden on business.
"On the whole this is good news but this remains a complex policy to implement," said Groom.
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